by Reid Hoffman |
My old friend Peter Thiel once wrote an essay for the Wall Street Journal, titled “Competition Is for Losers.” Entrepreneurs frequently make the mistake of picking highly competitive markets. I suspect that they fall into this trap because many entrepreneurs come from elite universities where they succeeded by outcompeting a bunch of other smart people on a level playing field.
This may be commendable in the academic world, but this is a brittle strategy for blitzscaling. It’s far better to pick a market where you face no competition (either people don’t understand the market, or you’re a contrarian who defies the conventional wisdom and happens to be right) or, more likely, weak competition.
You may be incredibly smart and insightful, but among the billions of people in the world, there are probably hundreds of thousands with comparable skills and capabilities. Don’t compete with them head on; find a valuable opportunity space they’ve overlooked. Often, this comes from a willingness to take risks that others fear, but which you realize are overblown.
When Richard Branson started Virgin Atlantic, he was entering a known and valuable market with weak competition — i.e., other airlines. Branson’s team didn’t focus on outdoing the airlines on their own turf (landing slots and frequent flights). Instead, they focused on making the flying experience delightful and unique — a playing field where the competition was demonstrably weak.
When you dominate your competition, your company may be described as having a monopoly. The term has developed highly negative connotations, conjuring up images of a bullying robber baron using any means possible — legal or illegal — to squash potential competitors. Restraint of trade is rightly illegal. But this distaste for monopolies shouldn’t lead us to conclude that dominant competitors need to be penalized.
You don’t have to make it easy for challengers to copy your playbook, but you have every right to fiercely compete and win. Moreover, innovation and the emergence of new markets renders even the strongest monopoly moot. Microsoft had one of the strongest monopolies in history on desktop software, but it couldn’t block the rise of iOS and Android on mobile phones.
Here’s how to maintain your competitive advantage as you blitzscale.
Use speed as a weapon
As an early-stage startup, your fundamental competitive advantage is speed. That’s why it’s important to prioritize speed over efficiency and scale as quickly as possible. Other advantages include being able to take on a lot of risk (because you don’t have anything to lose) and being willing to go where other people aren’t (because you can survive in very marginal niches).
Once you reach what we call the Tribe Stage (10-99 employees), others have probably noticed your pioneering efforts. Once this happens, new entrants may jump in, sensing a “hot space.” Regardless of what you think of the quality of these competitors, they muddy the waters and make it harder for you to break out.
Assuming that the competition has emerged, you can start to develop strategies to beat them. You're not letting your actions be dictated by the competition; by acting, you’re trying to dictate their actions. Part of first-scaler advantage comes from setting the pace and making other people play by your playbook. One way to do this is to scale up faster than they do: raise more, hire more, scale more.
You should also pick and stick to a specific competitive edge. To blitzscale successfully, you need a differentiated hypothesis about the market. It may change along the way, as new data emerges, but you should always have a hypothesis. This means researching the unknowns and finding what scales as quickly as possible. Here, your network can be a key part of your offensive strategy.
Then, play defense
At the next stage, which I call the Village stage (100-999 employees), you’ve made your bet, and now you're wondering if you should double down. As you make these decisions, you need to make sure you’re not drinking your own Kool-Aid. One of the ways I like to generate fresh, objective insight is to ask people, "If we were trying to compete with ourselves, what we would do?" You can also seek outside perspectives, either from an independent board member, or by leveraging the network intelligence of smart people you know.
Until now, your sole focus has been offense. If you don’t have customers, why do you need to worry about retaining them? Now you should ask, “How can we fend off the competition?” Often, the answer is more blitzscaling. Being the first scaler helps you acquire customers, lock in investors, and attract the best talent. Both Yahoo and Excite were search engines from Stanford, but Yahoo’s first-scaler advantage gave it a head start that Excite could never overcome. (Yahoo was eventually overtaken by Google, which changed the game, both with its PageRank technology and its innovative AdWords business model.)
Strengthen your market position
Once you grow beyond the Village stage, establishing a new competitive edge tends to be very difficult. (If you're interested in learning more about blitzscaling within an established company, you may want to read our other essay Blitzscaling Beyond Startups.) Instead, you need to focus on strengthening your existing position. There are several best practices for doing so.
First, you can try to establish a standard. One of the standard Silicon Valley plays is to move from an app to a platform so that you can attract people to build on and to your platform. Salesforce.com’s Force.com ecosystem is a great example of this. Second, you can offer a more complete solution, and try to outflank the competition.
Make financial strategy your competitive strategy
Eventually, acquisitions become important, if not essential. You can acquire an innovative technology and team, then feed them with massive resources as they scale. Acquisitions are the biggest offensive and defensive plays in your playbook.
Think about how certain key acquisitions won a major market for their acquirers. Acquiring YouTube allowed Google to recover from its failed Google Video initiative, but it also kept YouTube out of the hands of other potential acquirers. Acquiring Instagram and Whatsapp helped defend Facebook against mobile incursions, but also made Facebook the leader in mobile. Once you’ve become the market leader, you need to play both defense and offense simultaneously.
Blitzscaling is just the beginning of your company's story, not its conclusion. Once you start to blitzscale, it's just as important to keep your competitive edge sharp if you want to build and maintain an enduring market leader.
This essay is adapted from the planned Blitzscaling Playbook. To learn more about why, when, and how to blitzscale your organization, visit Blitzscaling.com to order your copy of our book Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies.